exv10w1






Exhibit 10.1




UNITED STATES OF AMERICA

BEFORE THE

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

WASHINGTON, D.C.




ILLINOIS DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION

DIVISION OF BANKING

SPRINGFIELD, ILLINOIS



	 	 	 	 	 	 
	 
	 	 	 	 	 
	 
	 	 	 	 	 
	Written Agreement by and among
	 	 	 	 	 
	 
	 	 	 	 	 
	MIDWEST BANC HOLDINGS, INC.

	 	 	Docket Nos.
	 	09-190-WA/RB-HC
	Melrose Park, Illinois

	 	 	 	 	09-190-WA/RB-SM
	 
	 	 	 	 	 
	MIDWEST BANK AND TRUST COMPANY

	 	 	 	 	2009-DB-102
	Elmwood Park, Illinois
	 	 	 	 	 
	 
	 	 	 	 	 
	FEDERAL RESERVE BANK OF
	 	 	 	 	 
	  CHICAGO
	 	 	 	 	 
	Chicago, Illinois
	 	 	 	 	 
	 
	 	 	 	 	 
	and
	 	 	 	 	 
	 
	 	 	 	 	 
	ILLINOIS DEPARTMENT OF
	 	 	 	 	 
	  FINANCIAL AND PROFESSIONAL
	 	 	 	 	 
	  REGULATION
	 	 	 	 	 
	  DIVISION OF BANKING
	 	 	 	 	 
	Springfield, Illinois
	 	 	 	 	 
	 
	 	 	 	 	 
	 
	 	 	 	 	 





     WHEREAS, in recognition of their common goal to maintain the financial soundness of
Midwest Banc Holdings, Inc. (“ MBHI”), Melrose Park,
Illinois, a registered bank holding
company, and its subsidiary bank, Midwest Bank and Trust Company, Elmwood Park, Illinois
(the “Bank”), a state chartered bank that is a member of the Federal Reserve System, MBHI,
the Bank, the Federal Reserve Bank of Chicago (the “Reserve Bank”), and the Illinois
Department of Financial and Professional Regulation, Division of Banking (the
“Department”) have mutually agreed to enter into this Written Agreement (the “Agreement”);
and



 









 





     WHEREAS, on
December 15, 2009, MBHI’s and the Bank’s boards of
directors, at duly constituted meetings, adopted resolutions authorizing and
directing Roberto R. Herencia to consent to this Agreement on behalf of MBHI and the Bank,
and consenting to compliance with each and every applicable provision
of this Agreement by
MBHI, the Bank, and their institution-affiliated parties, as defined in sections 3(u) and
8(b)(3) of the Federal Deposit Insurance Act, as amended (the “FDI Act”)(12 U.S.C. §§
1813(u) and 1818(b)(3)).



     NOW,
THEREFORE, MBHI, the Bank, the Reserve Bank, and the Department agree as
follows:



Board Oversight




     1. Within
60 days of this Agreement, the board of directors of the Bank shall submit
to the Reserve Bank and the Department a written plan to strengthen board oversight of the
management and operations of the Bank. The plan shall, at a minimum, address, consider,
and include:



          (a) The
actions that the board of directors will take to improve the Bank’s
condition and maintain effective control over, and supervision of, the Bank’s major
operations and activities, including but not limited to, credit risk
management, allowance
for loan and lease losses (“ALLL”), capital, earnings, and funds management; and




          (b) a description of the information and reports that will be regularly reviewed by the board of
directors in its oversight of the operations and management of the Bank, including
information on the Bank’s adversely classified assets, concentrations of credits,
ALLL, capital, earnings, and funds management.






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Credit Risk Management




     2. Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the
Department an acceptable written plan to strengthen credit risk management practices. The plan
shall, at a minimum, address, consider, and include:



          (a) Procedures to identify, limit, and
manage concentrations of credit that are consistent with the Interagency Guidance on Concentrations
in Commercial Real Estate Lending, Sound Risk Management Practices, dated December 12, 2006 (SR
07-1);




          (b) the establishment by the board of directors of the Bank of appropriate written risk
tolerance guidelines and risk limits, and controls to ensure adherence thereto;




          (c) procedures to
periodically review and revise risk exposure limits to address changes in market conditions




          (d)
strategies to reduce concentrations of credit; and




          (e) sufficient experienced staff to resolve
problem credits.




Asset Improvement




     3. (a) The Bank shall not, directly or indirectly, extend or renew any credit to or for the
benefit of any borrower, including any related interest of the borrower, who is obligated to the
Bank in any manner on any extension of credit or portion thereof that has been charged off by the
Bank or classified, in whole or in part, “loss” in the report of examination conducted jointly by
the Reserve Bank and the Department that commenced on May 18, 2009 (“Report of Examination”) or in
any subsequent report of examination, as long as such credit remains uncollected.



          (b) The Bank shall not, directly or indirectly, extend or renew any credit to or
for the benefit of any borrower, including any related interest of the borrower, whose extension





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of credit
has been classified “doubtful” or “substandard” in the Report of Examination or in any
subsequent report of examination, without the prior approval of the Bank’s board of directors. The
board of directors shall document in writing the reasons for the extension of credit or renewal,
specifically certifying that: (i) the extension of credit is necessary to protect the Bank’s
interest in the ultimate collection of the credit already granted or (ii) the extension of credit is
in full compliance with the Bank’s written loan
policy, is adequately secured, and a thorough credit analysis has been performed indicating that
the extension or renewal is reasonable and justified, all necessary loan documentation has been
properly and accurately prepared and filed, the extension of credit will not impair the Bank’s
interest in obtaining repayment of the already outstanding credit, and the board of directors
reasonably believes that the extension of credit or renewal will be repaid according to its terms.
The written certification shall be made a part of the minutes of the board of directors meetings,
and a copy of the signed certification, together with the credit analysis and related information
that was used in the determination, shall be retained by the Bank in the borrower’s credit file for
subsequent supervisory review. For purposes of this Agreement, the term “related interest” is
defined as set forth in section 215.2(n) of Regulation O of the
Board of Governors of the Federal
Reserve System (the “Board of Governors”) (12 C.F.R. §215.2(n)) .




     4. (a) Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the
Department an acceptable written plan designed to improve the Bank’s position through repayment,
amortization, liquidation, additional collateral, or other means on each loan or other asset in
excess of $500,000, including other real estate owned (“OREO”), that (i) is past due as to
principal or interest more than 90 days as of the date of this Agreement; (ii) is on the Bank’s
problem loan list; or (iii) was adversely classified in the Report of Examination. In



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developing the plan for each loan, the Bank shall, at a minimum, review, analyze, and document the
financial position of the borrower, including source of repayment, repayment ability, and
alternative repayment sources, as well as the value and accessibility of any pledged or assigned
collateral, and any possible actions to improve the Bank’s collateral position.




          (b) Within
30 days of the date that any additional loan or other asset in excess of
$500,000, including OREO, that (i) becomes past due as to principal or interest for more
than 90 days; (ii) is on the Bank’s problem loan list; or (iii) is
adversely classified in any subsequent report of examination of the Bank, the Bank
shall submit to the Reserve Bank and the Department an acceptable written plan to improve
the Bank’s position on such loan or asset.




          (c) Within 30 days after the end of each
calendar quarter thereafter, the Bank shall submit a written progress report to the Reserve
Bank and the Department to update each asset improvement plan, which shall include, at a
minimum, the carrying value of the loan or other asset and changes in the nature and value
of supporting collateral, along with a copy of the Bank’s current problem loan list, a list
of all loan renewals and extensions without full collection of interest in the last quarter,
and past due/non-accrual report. The board of directors shall review the progress reports
before submission to the Reserve Bank and the Department and shall document the review in
the minutes of the board of directors’ meetings.




Allowance for Loan and Lease Losses




     5. (a) Within
10 days of this Agreement, the Bank shall eliminate from its books, by charge-off
or collection, all assets or portions of assets classified “loss” in the Report of Examination that
have not been previously collected in full or charged off. Thereafter the Bank shall, within 30
days from the receipt of any federal or state report of examination, charge



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off all
assets classified “loss” unless otherwise approved in writing by the Reserve Bank and the
Department.



          (b) Within 60 days of this Agreement, the Bank shall review and revise its
allowance for loan and lease losses (“ALLL”) methodology consistent with relevant
supervisory guidance, including the Interagency Policy Statements on the Allowance
for Loan and Lease Losses, dated July 2, 2001 (SR 01-17 (Sup)) and December 13,
2006 (SR
06-17), and the findings and recommendations regarding the ALLL set forth in
the Report of Examination, and submit a description of the revised methodology to
the Reserve Bank and the Department. The revised ALLL methodology shall be
designed to maintain an adequate ALLL and shall address, consider, and include, at
a minimum, the reliability of the Bank’s loan grading system, the volume of
criticized loans, concentrations of credit, the current level of past due and
nonperforming loans, past loan loss experience, evaluation of probable losses in
the Bank’s loan portfolio, including adversely classified loans, and the impact of
market conditions on loan and collateral valuations and collectability.




          (c) Within 90 days of this Agreement, the Bank shall submit to the Reserve
Bank and the Department an acceptable written program for the maintenance of an
adequate ALLL. The program shall include policies and procedures to ensure
adherence to the revised ALLL methodology and provide for periodic reviews and
updates to the ALLL methodology, as appropriate. The program shall also provide
for a review of the ALLL by the board of directors on at least a quarterly calendar
basis. Any deficiency found in the ALLL shall be remedied in the quarter it is
discovered, prior to the filing of the Consolidated Reports of Condition and
Income, by additional provisions. The board of directors shall maintain written
documentation of its review, including the factors considered and conclusions
reached by the Bank in determining the




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adequacy of the ALLL. During the term of this Agreement, the Bank shall submit to the Reserve
Bank and the Department, within 30 days after the end of each calendar quarter, a written report
regarding the board of directors’ quarterly review of the ALLL and a description of any changes to
the methodology used in determining the amount of ALLL for that quarter.




Earnings Plan and Budget




     6. (a) Within 90 days of this Agreement, the Bank shall submit to the Reserve Bank and
the Department a written business plan for 2010 to improve the Bank’s earnings and overall
condition. The plan, at a minimum, shall provide for or describe:



(i) a realistic and
comprehensive budget for calendar year 2010, including income statement and balance sheet
projections; and



(ii) a description of the operating assumptions that form the basis for,
and adequately support, major projected income, expense, and balance sheet components.



          (b) A business plan and budget for each calendar year subsequent to 2010 shall be submitted to
the Reserve Bank and the Department at least 30 days prior to the beginning of that calendar year.




Capital Plan




     7. Within 60 days of this Agreement, MBHI and the Bank shall submit to the Reserve Bank and
the Department an acceptable joint written plan to maintain
sufficient capital at MBHI on a
consolidated basis, and the Bank as a separate legal entity on a stand-alone basis. The plan
shall, at a minimum, address, consider, and include:



          (a) MBHI’s current and future capital
requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies:
Risk-Based Measure and




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Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors (12
C.F.R. Part 225, App. A and D);




          (b) the Bank’s current and future capital requirements, including
compliance with the Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure and
Tier 1 Leverage Measure, Appendices A and B of Regulation H of the Board of Governors (12 C.F.R.
Part 208, App. A and B);




          (c) the adequacy of the Bank’s capital, taking into account the volume of
classified assets, concentrations of credit, the adequacy of the
ALLL, current and projected asset
growth, projected retained earnings, and anticipated and contingency funding needs;




          (d) the
source and timing of additional funds to fulfill MBHI ‘s and the Bank’s future
capital requirements; and




          (e) the
requirements of section 225.4(a) of Regulation Y of the Board of
Governors (12 C.F.R. § 225.4(a)) that MBHI serve as a source of strength to the Bank.




     8. MBHI
and the Bank shall notify the Reserve Bank and the Department, in writing, no more
than 30 days after the end of any calendar quarter in which any of MBHI’s consolidated capital
ratios or the Bank’s capital ratios (total risk-based, Tier 1, or leverage) fall below the approved
capital plan’s minimum ratios. Together with the notification, the MBHI and the Bank shall submit
an acceptable written plan that details the steps MBHI or the Bank, as appropriate, will take to
increase MBHI’s or the Bank’s capital ratios to or above the approved capital plan’s minimums.



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Liquidity and Funds Management




     9. Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the
Department an acceptable written plan designed to enhance management of the Bank’s liquidity
position. The plan shall, at a minimum, address, consider, and include:



          (a) Measures to enhance
the monitoring and reporting of the Bank’s liquidity position; and




          (b) periodic review of risk
limits to ensure that they remain commensurate with the Bank’s liquidity risk profile.




     10. Within 30 days of this Agreement, the Bank shall submit to the Reserve Bank and the
Department a revised written contingency funding plan that, at a minimum, identifies available
sources of liquidity and includes enhanced adverse scenario planning.



Interest Rate Risk Management




     11. Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and
the Department an acceptable written plan to improve interest rate risk management
practices that are appropriate for the size and complexity of the Bank. The plan shall, at a
minimum, address the following:



          (a) Enhanced measurement and reporting of interest rate risk that,
at a minimum, considers and includes:




               (i) Wholesale products containing embedded options; and



               (ii) loans with contractual floors;



          (b) Procedures and controls, including, but not limited to,
periodic stress testing of critical modeling assumptions, to ensure that the inputs and assumptions
used to model




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and control the vulnerability of the Bank’s net interest income due to changes in interest rates
are accurate and reflect the Bank’s current balance sheet structure and market conditions; and



          (c) provide for a periodic independent review and assessment of the Bank’s interest rate risk model and
processes, including but not limited to, the accuracy and completeness of the data inputs into the
Bank’s risk measurement system, and compliance with the Bank’s policies.




Dividends
and Distributions




     12. (a) The Bank shall not declare or pay any dividends without the prior written approval of
the Reserve Bank, the Director of the Division of Banking Supervision and Regulation of the Board
of Governors (the “Director”), and the Department.



          (b) MBHI
shall not declare or pay any dividends without the prior written
approval of the Reserve Bank and the Director.




          (c) MBHI
shall not take any other form of payment representing a reduction
in capital from the Bank without the prior written approval of the Reserve Bank.




          (d) MBHI and its nonbank subsidiary shall not make any distributions of interest, principal, or
other sums on subordinated debentures or trust preferred securities without the prior written
approval of the Reserve Bank and the Director.




          (e) All requests for prior approval shall be received at least 30 days prior to the proposed
dividend declaration date, proposed distribution on subordinated debentures, and required
notice of deferral on trust preferred securities. All requests shall contain, at a minimum,
current and projected information, as appropriate, on the parent’s capital, earnings, and cash
flow; the Bank’s capital, asset quality, earnings and ALLL needs; and identification of the sources
of funds for the proposed payment or distribution. For requests to declare or pay





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dividends,
MBHI and the Bank, as appropriate, must also demonstrate that the requested declaration
or payment of dividends is consistent with the Board of Governors’ Policy Statement on the Payment
of Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985
(Federal Reserve Regulatory Service, 4-877 at page 4-323).




Debt and Stock Redemption




     13. (a) MBHI and its nonbank subsidiary, shall not, directly or indirectly, incur, increase,
or guarantee any debt without the prior written approval of the Reserve Bank. All requests for
prior written approval shall contain, but not be limited to, a statement regarding the purpose of
the debt, the terms of the debt, and the planned source(s) for debt repayment, and an analysis of
the cash flow resources available to meet such debt repayment.



          (b) MBHI
shall not, directly or indirectly, purchase or redeem any shares of
its stock without the prior written approval of the Reserve Bank.




Compliance with Laws and Regulations




     14. (a) In appointing any new director or senior executive officer, or changing the
responsibilities of any senior executive officer so that the officer would assume a different
senior executive officer position, MBHI and the Bank shall comply with the notice provisions of
section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of
Governors (12 C.F.R. §§ 225.71 et seq.) and also provide notice to the Department. MBHI and the
Bank shall not appoint any individual to MBHI’s or the Bank’s board of directors or employ or
change the responsibilities of any
individual as a senior executive officer if the Reserve Bank or the Department notifies MBHI or the
Bank of disapproval within the time limits prescribed by Subpart H of Regulation Y.



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          (b) MBHI and the Bank shall comply with the restrictions on indemnification
and severance payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and
Part 359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part
359).




Compliance with Agreement




     15. (a) Within
10 days of this Agreement, MBHI and the Bank’s boards of directors shall
appoint a joint compliance committee (the “Compliance Committee”) to monitor and coordinate MBHI’s
and the Bank’s compliance with the provisions of this Agreement. The Compliance Committee shall
include a majority of outside directors who are not executive officers or principal shareholders of
MBHI and the Bank, as defined in sections 215.2(e)(1) and 215.2(m)(1) of Regulation O of the Board
of Governors (12 C.F.R. §§ 215.2(e)(1) and 215.2(m)(1)). At a minimum, the Compliance Committee
shall meet at least monthly, keep detailed minutes of each meeting, and report its findings to the
boards of directors of MBHI and the Bank.



Progress Reports




     16. Within 30 days after the end of each calendar quarter following the date of this
Agreement, the Bank shall submit to the Reserve Bank and the Department written progress reports
detailing the form and manner of all actions taken to secure compliance with the provisions of
this Agreement and the results thereof.



Approval
and Implementation of Plans and Program




     17. (a) MBHI
and the Bank shall submit written plans and a program that are acceptable to the
Reserve Bank and the Department within the applicable time periods set forth in
paragraphs 2, 4(a), 4(b), 5(c), 7, 8, 9, 10, and 11 of this Agreement.



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          (b) Within 10 days of approval by the Reserve Bank and the Department, MBHI
and the Bank shall adopt the approved plans and program. Upon
adoption, MBHI and
the Bank shall promptly implement the approved plans and program, and
thereafter fully
comply with them.




          (c) During
the term of this Agreement, the approved plans and program shall not
be amended or rescinded without the prior written approval of the Reserve Bank and
the Department.




Communications




     18. All
communications regarding this Agreement shall be sent to:




	 	(a)	 	Mr. Charles F. Luse 
 Assistant Vice President 
 Federal Reserve Bank of Chicago

230 South LaSalle Street
 Chicago, Illinois 60604
	 
	 	(b)	 	Mr. Scott D. Clarke

Assistant Director

Department of Financial and Professional Regulation

Department of Banking 
 122 South Michigan Ave 
 Chicago, Illinois
60603
	 
	 	(c)	 	Mr. Roberto R. Herencia 
 President & CEO

Midwest Banc Holdings, Inc. 
 Midwest Bank and
Trust Company 
501 W. North Avenue 
 Melrose Park,
Illinois 60160




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Miscellaneous




     19. Notwithstanding any provision of this Agreement, the Reserve Bank and the Department may,
in their sole discretion, grant written extensions of time to MBHI and the Bank to comply with any
provision of this Agreement.



     20. The
provisions of this Agreement shall be binding upon MBHI, the Bank, and their institution-affiliated
parties, in their capacities as such, and their successors and assigns.



     21. Each
provision of this Agreement shall remain effective and enforceable until stayed,
modified, terminated, or suspended in writing by the Reserve Bank and the Department.



     22. The
provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of
Governors, the Reserve Bank, the Department, or any other federal or state agency from taking
anyother action affecting MBHI, the Bank, or any of their current or former
institution-affiliated parties and their successors and assigns.



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     23. Pursuant
to Section 50 of the FDI Act (12 U.S.C. § 1831aa), this Agreement is enforceable
by the Board of Governors under Section 8 of the FDI Act (12 U.S.C. § 1818). In addition, this
Agreement is enforceable by the Department under Section 48 of the Illinois Banking Act.



     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the 18th day of December, 2009.



	 	 	 	 	 	 	 	 	 	 	 
	MIDWEST BANC HOLDINGS, INC.	 	 	 	FEDERAL RESERVE BANK OF CHICAGO	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Roberto R. Herencia	 	 	 	By:	 	/s/ Mark H. Kawa	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	Roberto R. Herencia	 	 	 	 	 	Mark H. Kawa	 	 
	 

	 	President & CEO	 	 	 	 	 	Vice President	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	MIDWEST BANK AND TRUST COMPANY	 	 	 	ILLINOIS DEPARTMENT OF
FINANCIAL AND PROFESSIONAL REGULATION	 	 
	 	 	 	 	 	 		 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Roberto R. Herencia	 	 	 	By:	 	/s/ Jorge A. Solis	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	Roberto R. Herencia	 	 	 	 	 	Jorge A. Solis	 	 
	 

	 	President & CEO	 	 	 	 	 	Director	 	 







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